Ship rates drop as U.S. oil imports fall most since ’91

Growing U.S. energy independence is driving the biggest drop in crude imports in two decades and rates for the oil tankers most reliant on the shipments to the weakest in at least 16 years.

Seaborne imports will decline 11 percent to 5.4 million barrels a day in 2013, the largest slide since at least 1991, according to Clarkson Plc, the leading shipbroker. Suezmaxes hauling 1 million-barrel cargoes earned $10,652 a day this year, the least since 1997, its data show. The rate is 55 percent less than Euronav NV says it needs to break even on the 22 tankers it owns. Shares of the company will fall 8.3 percent in a year, the average of six analyst estimates compiled by Bloomberg shows.

Rising oil and gas output as fracking unlocks supplies trapped in shale rocks means the U.S. is meeting the highest proportion of its energy needs since 1986, government data show. The nation will overtake Saudi Arabia as the top oil producer by 2020, according to the International Energy Agency in Paris. Suezmax shipments of West African crude to North America will average 700,000 barrels a day this year, a 30 percent drop in three years, Clarkson estimates.

“Domestic oil is crowding out West African imports,” said Frode Moerkedal, an Oslo-based analyst at RS Platou Markets AS whose recommendations on the shares of shipping companies returned 16 percent in the past year. “Overall trade has been declining because nobody is picking up the slack from the U.S.”

Capacity Glut

Suezmaxes, the 900-foot ships that haul about 21 percent of all seaborne oil, will earn $14,700 a day this year, 16 percent less than in 2012, Morgan Stanley estimates. Euronav, based in Antwerp, Belgium, said in May it needs $23,600 to break even.

Shares of Euronav (EURN) fell 19 percent to 3.73 euros in Brussels this year and will reach 3.42 euros in 12 months, the average of six analyst estimates shows. The company’s net loss will narrow to $74.7 million this year, from $85.9 million in 2012, according to the mean of five estimates. Euronav is the third-largest listed owner of Suezmaxes, after Teekay Corp. and Nordic American (NAT) Tankers Ltd., both based in Hamilton, Bermuda.

The industry should demolish 50 to 60 ships out of a total fleet of about 480 to diminish the capacity glut, Paddy Rodgers, Euronav’s chief executive officer, said in an interview.

“There’s no magic wand,” he said by phone on June 26. “No particular operator can significantly outperform the market for a prolonged period of time.”

Gulf Coast

U.S. imports, including by pipeline, fell to 7.3 million barrels a day in February, the lowest monthly rate since 1996, Energy Department data show. Daily domestic production was 7.26 million barrels in the week ended June 21, within 2 percent of the 21-year high reached in May, government data show.

Some U.S. importers prefer Suezmaxes over very large crude carriers twice the size because the smaller vessels can dock in more places. Only one U.S. port on the Gulf Coast, the region that receives the majority of imports, can accommodate VLCCs, according to McQuilling Services LLC, a Garden City, New York-based consultant. Shipments to North America will account for 27 percent of Suezmax demand this year, a higher proportion than for any other type of tanker, Clarkson data show.

West African cargoes that once went to the U.S. are now going to China on larger tankers. VLCCs were booked to haul 44 percent of the region’s exports last month, from 38 percent a year earlier, according to Galbraith’s Ltd., a shipbroker in London. The supertankers cost less per ton of cargo carried than Suezmaxes for longer voyages, Moerkedal said.

European Ports

Demand for Suezmaxes may be boosted by more Middle East cargoes going to Europe. Shipments through the Suez Canal linking the Red Sea to the Mediterranean rose 13 percent in the first quarter from a year earlier, data from the waterway show. VLCCs only dock regularly at three European ports and Suezmaxes are the biggest vessels that can navigate the canal fully laden.

Extra demand may also come from China, which is poised to import almost as much seaborne crude as the U.S. for the first time ever this year, according to Clarkson. The world’s second-biggest economy will buy 5.4 million barrels a day in 2013, 9 percent more than in 2012, London-based Clarkson estimates. A one-way delivery from Angola to China takes about 32 days, compared with 22 days to Houston.

Global seaborne trade in crude will advance 0.8 percent to 38.4 million barrels a day this year, down from growth of 1.8 percent in 2012, the shipbroker estimates. While volumes carried by Suezmaxes will climb 3 percent, the leading contributor will be shipments to India from the Persian Gulf, a voyage that can take as little as four days.

Global Recession

The combined capacity of Suezmaxes increased 40 percent since 2008, when rates surged to a record $155,000 a day. That spurred owners to order too many ships just as a global recession began. Outstanding contracts at shipyards equal 14 percent of existing capacity, the most of any type of crude tanker, according to IHS Fairplay, a Redhill, England-based research company. The Suezmax fleet will expand 8.2 percent this year, the fastest of any tanker class, Clarkson estimates.

The glut extends across much of the industry. Rates for VLCCs and the largest iron-ore carriers averaged less than operating costs this year, according to data compiled by Bloomberg. The ClarkSea Index, a measure of industrywide earnings, is averaging the lowest since at least 1990.

Shares of Teekay (TK), which also owns smaller tankers and liquefied natural gas carriers, rose 26 percent to $40.39 in New York this year and will drop to $39.20 in 12 months, the average of 10 analyst estimates shows. Nordic American declined 14 percent to $7.55 and will advance to $9 in a year, according to the forecasts. The company says its fleet of 20 Suezmaxes needs $12,000 a day to break even.

“The crude that the U.S. is producing is light and sweet,” said Jonathan Chappell, a New York-based analyst at Evercore Partners whose recommendations on the shares of shipping companies returned 23 percent in the past year. “That’s displacing primarily West African crude, which is a primary route for Suezmaxes. Then throw on top the highest order book, and it’s just a really tough near-term outlook.”